Negotiation Not Confrontation: Getting Divorced

Divorce can be painful, both emotionally and financially. In fact, a failed marriage typically leaves those involved with 77% less wealth than that of a single person, according to a 2005 study.*

Still, if you and your soon-to-be-ex-spouse can find a way to work together, you could end the marriage with your finances in reasonable shape—and perhaps with a little less emotional pain.

Indeed, if you have children still living at home, it’s critical to maintain a reservoir of goodwill. In the years ahead, there will be many times when cooperation between parents is important, whether it involves deciding on after-school activities or asking your former spouse to look after the kids when you take a business trip.

If you’ve concluded your marriage can’t be saved, here are some steps to consider:

Get your documents in order. Make copies of pay stubs, five years of tax returns, life insurance policies, loan agreements and recent account statements from banks and investment companies.

Indeed, if you have children still living at home, it’s critical to maintain a reservoir of goodwill.

List your valuables. Compile a list of the household’s contents—and maybe even photograph them. Make a note of items that were gifts from friends or relatives. This will help ensure that everything is accounted for—and that nothing mysteriously disappears.

Disentangle your finances. Get separate bank accounts and credit cards, while canceling all joint credit cards. That way you can each re-establish your own credit history, and you are less likely to be responsible if your spouse runs up a slew of credit card charges.

Pay the bills. Make sure the mortgage, car payments, utilities and other bills are paid on time, so you maintain a good credit score.

Hire a lawyer. Try to interview three or four lawyers before you choose one. Ask about their experience and fees and whether they prefer to negotiate or litigate. Also find out whether they have a good working relationship with your spouse’s attorney.

When your family and friends learn that you’re divorcing, they may encourage you to hire an aggressive lawyer to fight it out. But if you go that route or you let the lawyers negotiate every detail, your divorce will likely be much more expensive. Instead, try to negotiate much of the settlement yourselves, perhaps with the help of a divorce mediation service. Once you have a proposed settlement, you can ask the lawyers to put it into legal language and help with alimony and child-support calculations.

Divide assets. The split will depend, in part, on the state where you live. In several states, wealth amassed during the marriage is typically considered community property and is divided equally. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and sometimes Alaska are community property states. In most other states, commonly referred to as "common law" states, judges can divide assets as they see fit. That means there’s an element of unpredictability—and explains why a divorcing couple may want to reach their own agreement.

Move on. You might have a strong desire to keep the family home. But that could be a mistake, especially if it would tie up a lot of your wealth. Plus, you may struggle to pay the property taxes, maintenance and homeowner’s insurance on one salary. If you do sell the home, try to do it while you’re still technically married, so you can avoid taxes on price appreciation.

Give yourself a cushion. Your divorce may force you to go back to work. If it could take you a while to find a job, try to give yourself a financial cushion by asking for taxable-account money in the divorce, instead of retirement accounts. Withdrawals from retirement accounts before age 59½ could trigger income taxes and early withdrawal penalties.